I don’t know what happy drug the markets were on yesterday but it must have been powerful to get a positive reaction out of poor private fixed capital investment figures.

For mine, the capex numbers do nothing to make a March interest rate cut less likely as capital is close to going on strike outside the resources sector.

There have been a number of conflicting signals in the non-resources sector this financial year, but the nation’s chief financial officers are now effectively telling the Australian Bureau of Statistics that they are locking the safe.

Try manufacturing expecting to cut capex investment by 16 per cent next financial year after slicing it by 29 per cent this year. Try an already weak construction sector expecting to more than halve this year’s capex – down from $4.2 billion to just $1.9 billion.

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Apparently the consensus view of the commentariat was that the December quarter capex numbers weren’t as bad as they feared – they must have been seeing particularly scary monsters under their collective bed not to have been worried by the detail.

It seems the market was relieved that mining investment is tailing off slowly instead of falling off a cliff – but that shouldn’t have been a surprise at all. More than enough major projects are already locked in to prevent a sudden dive.

The quarterly capex survey is among the most important numbers the ABS produces because it looks forward, not just counting what has already occurred.

There is an unfortunate tendency is some quarters to concentrate on the backward-looking bit of the release instead of focusing on the message about the year ahead – that’s where the real value lies.

Each quarter the ABS asks a representative sample of the nation’s CFOs what they are spending on capex in the current financial year. Then, starting in the December quarter, they also ask them what they think they will spend in the next financial year.

It’s in the nature of CFOs to be a little (or even a lot) on the parsimonious side of things, to effectively grumble, “well, not as much as this year, if I can help it”. But even allowing for that tendency of the first estimate of the new year to be lower than the eventual outcome, this December quarter’s first estimate is weak.

The incredible contribution that the construction phase of the resources boom has made to our economic growth is tailing off as it must. (The boom continues, but not in construction growth.)

Mining capex will be a massive $105.1 billion this financial year, up from a wonderful $82 billion in 2011-12 and $46.8 billion the year before that, but the outlook for 2013-14 is fairly steady with a first guess of $100.2 billion. That’s still very healthy, but the contraction elsewhere is sharp.

Comments by the Reserve Bank’s governor, deputy governor and an assistant governor in the last week about the Australian dollar take on a different look in light of this update of manufacturing’s outlook.

The interesting thing about our manufacturing sector in 2012 was that despite all the headlines and complaints, exports rose and even employment picked up after bottoming in 2011.

To survive with a strong currency, those manufacturers not going under have had to become more productive, to invest in the latest and best machinery and seek a more skilled and productive workforce. Manufacturing investment actually rose in 2011-12 from the previous year, but it’s diving in 2012-13 and threatening to free-fall in 2013-14.

As for construction – the industry that suffered the biggest job losses last year – the ABS warns that capex estimates for the latest year are a little ropey, but the brutality of the investment contraction there can handle an error of 10 or 15 per cent and still be shocking.

Also worth mentioning is the wholesale sector: from a capex expectation of $3.5 billion this financial year, only $2.3 billion is planned to be invested in 2013-14.

The December quarter’s total capital investment expectation for 2012-13 is an extraordinary $168.2 billion, down just 1 per cent from the September quarter estimate, which is what the market seemed to focus on yesterday.

The first estimate for next financial year is $152.5 billion. That’s not too shabby at first glance, but leave out the mining sector and it’s a 17 per cent fall from $63.1 billion to $52.3 billion There’s no sign there of the transition that the RBA is hoping to see, certainly nothing for a monetary hawk to seize on.

The great hope for the Australian economy returning to trend growth in 2014 is housing construction picking up. With consumption growth expected to remain in line with softer income growth and business investment across the board contracting, that might start to look a little lonely. No wonder the RBA’s bias remains on the easing side.

Michael Pascoe is a BusinessDay contributing editor

21 comments so far

You see this is why MIchael is always wrong, he doesn't understand that when you print money in Japan that it can have an effect on asset prices in Australai. He looks at the economy in isolation and says " why are stocks going up when business investment is down " it's because of the spread MIchael and when the bond markets finally blow up it's going to end very badly. I'm sure at that point tho unemployment in Australia will be quiet high and you will just look at that.

Commenter

MP is always wrong

Location

sydney

Date and time

March 01, 2013, 8:26AM

@ MP is always wrong. Well firstly you do have a point, but I should caution that practically no one is "always" wrong.However, with regards to all this printing of money in Japan, the USA etc. Of course that's spreading to the Australian markets. With all this printing going on, if our (and their) markets don't 'go up' then they're definitely going down! Even if they're steady, they're going down. This is more or less the stated reason for the printing, to buoy assets and diminish debt. It also diminishes the value of cash savings and the incentive to save because the printing of more cash dilutes the value of existing cash. The buoyed assets encourage more debt. It works like magic, and works well if you believe in magic. I don't however, and I don't appreciate the effective attack on savings and savers.

Commenter

Christopher William Alger

Location

NSW

Date and time

March 01, 2013, 9:19AM

"The buoyed assets encourage more debt. It works like magic, and works well if you believe in magic."

Interesting comment there, Christopher. If people start gearing up again to buy stocks, investment properties etc. we will be back to square one and all this money-printing will have re-created the very problem it was intended to solve. I wonder if our central bankers have considered this?

Commenter

Joffa2

Location

Melbourne

Date and time

March 01, 2013, 10:31AM

Share markets globally have very much disconnected from fundamentals such as company earnings and are essentially trading on the back of the search for higher yields. The Japanese have been significant buyers in ASX due to the threat of negative interest rates mentioned by BOJ and a weakening yen. Pensioners in Australia are likewise looking at very low interest rates currently being offered on term deposits and are dangerously entering equity markets in the search for higher yields. Expect a pullback in global equities on the back of further US/Chinese debt revelations and austerity being reversed in Europe ie all will follow Italy's lead in this area. The Federal Reserve is getting very nervous about the state of its balance sheet [US$3 trillion in purchases which need to be unwound, including toxic assets which were transferred from private sector banks post GFC in exchange for cash]. Beware!!!!

Commenter

Money Man

Date and time

March 01, 2013, 8:32AM

Note correlation between AUD/YEN and ASX 300 is +0.85

Commenter

Enrico

Location

Sydney

Date and time

March 01, 2013, 9:31AM

" The great hope for the Australian economy is housing construction ".

Dear oh dear. Now I am worried. And never forget Glen Stevens stating that Australian property is way overpriced. He said it once ( was obviously smacked over the knuckles for saying it ) and has never mentioned it since.

I prefer the days when we rode on the sheeps back.

Commenter

The Oracle

Location

Oberon

Date and time

March 01, 2013, 8:59AM

as I have been arguing for two years, business costs are too high, especially wages. We are a very high cost country and it is simply not sustainable. Big business will continue to send jobs offshore and small to medium size businesses will go broke in droves. At the very time we needed maximum flexibility to meet the global challenges head on, we have been hamstrung with dreadful policies. It will be very costly. Imagine having no job these days with the cost of living as it is.

Commenter

Brisbane Bear

Location

Brisbane

Date and time

March 01, 2013, 9:18AM

I'm coining a new word for BB, so he doesn't have to type his message each time: "lowage". Even Karl Marx (you know, the guy who was wrong about everything) could see there was no point in having masses of low-income people gazing at goods in shop windows and being unable to buy.

Commenter

barfiller

Date and time

March 01, 2013, 2:28PM

Lol, Barfiller,

Maybe we had our turn to enjoy really high wages and din't do much with them other than blow a property bubble. Maybe the Asians are going to enjoy higher wages and a higher standard of living at our expense? All I know is that this article, like many others suggests business is struggling and our cost of doing business is too high. Capex falling is a bad omen going forward. Forget low wages, worry about no wages. No wages means, no spending power.